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Easterly, Buchanan, Hayek, and Economic Development

When I was an undergraduate student, the vast majority of my readings came from textbooks. For several years I looked at supply and demand graphs, calculated unemployment rates and elasticities, and answered questions about how changes in particular variables would impact inflation and economic growth according to various models.

During my senior year, however, our economic research class was assigned two “popular press” books by well-known economists. The topic of the course that semester was economic development. I’m forever grateful for those book assignments.

One of these books I have, and will probably always keep, in my office. Occasionally, I look back at the highlights I made and the questions I wrote in the margins what seems like a lifetime ago. Some of the questions I’ve since been able to answer. Others are still a mystery to me. I frequently recommend this book to students interested in economic development.

I remember Easterly’s book making sense to me. Here was an economist, who had spent years at the World Bank, offering his expert opinion on why aid and development programs largely fail. While I had already set my sights on graduate school, it was this book that made me give serious consideration to working on topics in economic development.

As I read Easterly’s work now, I cannot help but see its connection to the ideas of two Nobel laureates, F.A. Hayek and James M. Buchanan. I had the chance to discuss these similarities recently in a publication with the Institute for Economic Affairs.

Easterly has, and continues to point out, the difference between “planners” and “searchers” in economic development. “Planners,” according to Easterly, are those who believe they already know the correct policies, and can effectively implement them. “Searchers,” meanwhile, don’t have such concrete plans in place. As the name suggests, they instead search out different ideas, methods, and plans via trial and error.

This idea maintains a strong connection to Hayek’s ideas of planned versus spontaneous orders. For Hayek, Soviet-style central planning was doomed to fail, as economic planners could never hope to possess the knowledge necessary to effectively engage in economic calculation. For Hayek, only the price signals generated through the market process can work to efficiently allocate resources to their highest valued use. In a similar way, development planners cannot hope to take into account all the necessary variables in order to successfully plan development.

Throughout his body of work, Easterly also points out some major incentive problems when it comes to implementing development programs. Donor governments, recipient governments, NGOs, and other groups all come to the table with different goals and face different incentives. This, according to Easterly, leads to suboptimal outcomes. Without a doubt, this relates to Buchanan’s critiques of government intervention and planning. Through his development of public choice economics, Buchanan was able to explain how, even with good or even perfect knowledge, planning activities will likely fail as a result of poor incentive alignment on the part of the actors involved.

Just as the Mises/Hayek and Buchanan/Tullock camps deliver two critical blows to central planning, so too does Easterly land some particularly well-placed punches on those interested in planning development.

I hope that students of economics will continue to read and appreciate the work of people like Hayek and Buchanan. I also hope that Easterly’s work continues to be read far and wide. Without a doubt, the perspective he offers on economic development is one of utmost importance.

Fortunately, I think his work will stand the test of time.

A few weeks ago, I hosted a discussion colloquium at the University of Tampa with the Institute for Human Studies. The topic was foreign aid. Students were assigned to read work by individuals with multiple perspectives, including parts of White Man’s Burden. About a week before the colloquium, a student came to my office to discuss the reading.

“How do you like the readings?” I asked.

“This book! This book!” The student said, pointing to the copy I had on my desk (I was rereading it in preparation for the colloquium).

“It’s like–everything he says I’ve seen happen back at home. I love it. It just–it just makes sense!”